The Bursting Of The Bankruptcy Bubble


Whitney Tilson’s email to investors discussing the bursting of the bankruptcy bubble; individuals roll the dice on stocks as veterans fret; ‘Floating petri dishes’ – why I’m bearish on the cruise lines.

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Q1 2020 hedge fund letters, conferences and more

The Bursting Of The Bankruptcy Bubble

1) In Tuesday's e-mail, I wrote:

Fastenal: Why Being Cheap Works As a Business Strategy

FastenalFastenal is one of the best-performing stocks of the past decade. Since the beginning of January 2010, shares in the industrial distribution company have yielded an average annual return of 16%, turning every $10,000 invested into $44,264. Q2 2020 hedge fund letters, conferences and more In many ways, Fastenal is not the sort of business Read More

The bubble over the past week in bankrupt (or near-bankrupt) stocks may be the craziest thing I've seen since the Internet bubble.

Take a look at the gains in these stocks yesterday:

• Extraction Oil & Gas (XOG): 248%

• Chesapeake Energy (CHK): 182%

• Noble (NE): 161%

• Whiting Petroleum (WLL): 152%

• Valaris (VAL): 135%

• Hertz Global (HTZ): 115%

• J. C. Penney (JCPNQ): 96%

• RTW Retailwinds (RTW): 74%

Every one of these stocks isn't just likely to decline... they're all ZEROS!

This insanity is being driven by individual investors day trading and speculating like crazy...

It saddens me to see this because while this bubble, so far anyway, remains microscopic in size, it's still a few billion dollars that these investors are sure to lose – and, I suspect, these are losses these folks can't afford during these tough times...

This bubble is bursting as quickly as it inflated, as these stocks are down an average of 49% over the past two days (and are mostly down big again today):

  • Extraction Oil & Gas (XOG): -49%
  • Chesapeake Energy (CHK): -76%
  • Noble (NE): -44%
  • Whiting Petroleum (WLL): -52%
  • Valaris (VAL): -46%
  • Hertz Global (HTZ): -54%
  • J. C. Penney (JCPNQ): -52%
  • RTW Retailwinds (RTW): -21%

Don't be tempted to bottom-fish here – as I wrote on Tuesday, these stocks are all ZEROS!

Individuals Roll the Dice on Stocks as Veterans Fret

2) To better understand what's going on here, see this story from the front page of yesterday's Wall Street Journal: Individuals Roll the Dice on Stocks as Veterans Fret.

Don't get sucked into this foolishness! Remember: the surest way to get poor quickly is to try to get rich quickly...

Floating Petri Dishes

3) I think Las Vegas will definitely recover from the coronavirus crisis, and movie theaters probably as well.

But I'm not so sure about cruise ship operators like Carnival (CCL), Royal Caribbean Cruises (RCL), and Norwegian Cruise Line (NCLH), whose mega-ships make up 70% of the industry's total.

Cruises have been hit hard by numerous investigations, lawsuits, and stories like this one in the Washington Post: The pandemic at sea.

This story in yesterday's Financial Times captures the situation today: 'Floating Petri dishes': The 2020s were meant to be a boom decade for cruises – then COVID-19 hit them like a tidal wave.

The stocks of the big three might look cheap because they're still down more than 50% from the pre-pandemic highs. But they've roughly tripled from their lows and, in light of the many unknowns, I'd avoid them here...

Best regards,